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June 2, 2005.

LESZEK DOBROWSKI a/k/a MAREK MAKA; et al., Defendants.

The opinion of the court was delivered by: JAMES MORAN, Senior District Judge


Plaintiff First Magnus Financial Corporation (First Magnus) brought this action against defendants MVP Appraisals and Consultants (MVP Appraisals); Omega Financial Enterprises, Inc. (Omega); Alliance Title Corporation (Alliance Title); Guarantee Title & Trust Corporation (Guarantee Title); and individual defendants Mykolai Ponchko; Leszek Dobrowski; Katarazyna Kielczyk; and Maya Jordan, for multiple claims arising out of an allegedly fraudulent real estate transaction. In its original complaint plaintiff alleged seven counts. Counts I-IV are common law fraud claims against Ponchko, Dobrowski, Kielczyk, Jordan and MVP Appraisals, and count V alleges these defendants conspired to defraud plaintiff. Count VI is a breach of warranty and representations claim against Omega. Count VII alleges Alliance Title and Guarantee Title breached their title policy.

In an amended complaint plaintiff added three additional claims. Plaintiff brought two of the claims, count VIII for negligent misrepresentation and count IX for bad faith pursuant to 215 ILCS § 5/155, against both Alliance Title and Guarantee Title, while the third claim, count X, for violation of the Illinois Consumer Fraud Act, 815 ILCS § 505/1 et seq., is alleged only against Alliance Title. Alliance Title now moves to dismiss all the claims alleged against it and Guarantee Title moves to dismiss count VIII. Both motions are granted.


  The following facts, taken from First Magnus' complaint, are for purposes of these motions accepted as true. In June 2002, First Magnus, a mortgage company headquartered in Tucson, Arizona, entered into an agreement with Omega, a mortgage broker in Chicago, Illinois, under which Omega originated loans to be funded by First Magnus. Soon after they formed their agreement Omega sent First Magnus closing documents for a loan to Mykolai Ponchko for the purchase of a residential property on the south side of Chicago. Ponchko had submitted a loan application to Omega on June 5, 2002, seeking $175,500 to purchase a two-flat building at 1216 S. Avers. On the application Ponchko reported that he worked for a building company and had a net worth of $115,000. The closing documents for Ponchko's loan included an appraisal of the property at 1216 S. Avers. In the appraisal, dated May 5, 2002, Maya Jordan, an employee of MVP appraisals, stated that the two-flat building was in very good condition and valued the property at $195,000. Guarantee Title, as an agent for Alliance Title, issued a title commitment*fn1 to First Magnus for the property at 1216 S. Avers. The title policy stated that Leszek Dobrowski and Katarazyna Kielczyk owned the property as of June 4, 2002, as tenants in common.

  Based on the loan application, appraisal and title commitment, on July 8, 2002, First Magnus agreed to loan Ponchko $175,500, to be repaid over 30 years, at an annual interest rate of 7.875 per cent. To secure the loan, First Magnus took a first and prior mortgage on the property. The company recorded its mortgage on August 8, 2002. In early August 2002, First Magnus sold Ponchko's loan to Countrywide Mortgage.

  A few months later it became apparent that something was amiss. After Ponchko failed to make his loan payments, Countrywide Mortgage attempted to contact him, but to no avail. On January 14, 2003, an investigator hired by Countrywide Mortgage discovered that Ponchko had never lived at 1216 S. Avers, and that the City of Chicago had recently demolished the two-flat building at that address. Since July 2001, City inspectors had reported that the building was vacant, open and in disrepair. In November 2001, they began leaving notices that the building was subject to demolition. Countrywide Mortgage's investigator appraised the value of the property as of May 5, 2002, the date of MVP Appraisals' report, at $110,000-$85,000 less than Jordan's appraisal. After Countrywide Mortgage initiated foreclosure, First Magnus repurchased Ponchko's loan. Thereafter, First Magnus learned that, contrary to the representation in the title commitment, Dobrowski and Kielczyk did not own 1216 S. Avers at the time of Ponchko's purchase. On November 22, 2001, Dobrowski and Kielczyk had transferred ownership of the property to Heritage Unlimited, Inc. (Heritage), through a quit claim deed, which it recorded before Guarantee Title issued its title commitment.

  First Magnus brought this action on November 12, 2003. Subsequently, Alliance Title filed a third party complaint seeking (1) a declaratory judgment that the Heritage deed was invalid and (2) a quiet title in the name of Ponchko. The court entered a default judgment against Heritage in an order dated November 2, 2004. On December 20, 2004, the third party complaint was dismissed pursuant to settlement with the remaining third party defendants, and the court entered an order declaring the Heritage deed invalid and First Magnus' mortgage a fully enforceable lienhold interest. That led to the voluntary dismissal of count VII, breach of the title policy. That policy absolves liability if the title defect is cured, and it was. Count VII is dismissed.


  Both Alliance Title and Guarantee Title (collectively "defendants") move to dismiss the counts remaining against them. Alliance Title brings a Rule 12(b)(6) motion to dismiss counts VIII, IX, and X, and Guarantee Title brings a Rule 12(b)(6) motion to dismiss count VIII. A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint, not the merits of the case. Triad Assocs., Inc. v. Chicago Hous. Auth., 892 F.2d 583, 586 (7th Cir. 1989). In deciding a motion to dismiss, the court must assume the truth of all well-pleaded allegations, making all inferences in the plaintiff's favor. Sidney S. Arst Co. v. Pipefitters Welfare Educ. Fund, 25 F.3d 417, 420 (7th Cir. 1994). The court should dismiss a claim only if it appears "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957).

  Count VIII of plaintiff's complaint alleges that defendants falsely, recklessly and negligently misrepresented in their title commitment that Dobrowski and Kielczyk held free and clear title to 1216 S. Avers as of June 4, 2002. Relying on the information in the title commitment, plaintiff, unaware that Heritage had recorded a deed to the property with the Cook County Recorder of Deeds on May 31, 2002, loaned Ponchko money to purchase the property. Plaintiff seeks to recoup its losses from the loan issued to Ponchko, basing its claim not on contract but on tort concepts. Defendants argue that they cannot be held liable for plaintiff's economic loss due to a negligent misrepresentation.

  The Illinois Supreme Court's Moorman doctrine generally bars plaintiffs from recovering solely economic losses through a tort action. Moorman Manufacturing Co. v. National Tank Co., 91 Ill.2d 69, 86, 435 N.E.2d 443, 450 (Ill. 1982). In Moorman, the court held that the purchaser of a defective grain storage tank could not bring tort claims against the defendant manufacturer to recover its economic loss. 91 Ill.2d at 91, 435 N.E.2d at 453. The court reasoned that if it allowed such suits, tort law would eventually envelop contract law. Id. Nonetheless, the court did identify three exceptions to the Moorman doctrine: "(1) where the plaintiff sustained personal injury or property damage resulting from a tortious event, i.e., a sudden or dangerous occurrence; (2) where plaintiff's damages are proximately caused by a defendant's intentional, false representation, i.e., fraud; and (3) where the plaintiff's damages are proximately caused by a negligent misrepresentation by a defendant in the business of supplying information for the guidance of others in their business transactions." Fireman's Fund Insurance Co. v. SEC Donohue, Inc., 176 Ill.2d 160, 164, 679 N.E.2d 1197, 1199 (Ill. 1997) (internal citations omitted); In re Chicago Flood Litigation, 176 Ill.2d 179, 199, 680 N.E.2d 265, 275 (Ill. 1997); Lyons v. State Farm Fire and Casualty Co., 349 Ill.App.3d 404, 411, 811 N.E.2d 718, 725 (5th Dist. 2004).

  Plaintiff does not dispute that it seeks damages only for economic losses. However, it argues that the third exception to the Moorman doctrine applies in this case because the defendant title companies are in the business of supplying information for the guidance of others in their business transactions. Defendants reply that count VIII fails to allege that they are in the business of supplying information and, more significantly, that as a matter of law title insurers are not information providers for purposes of this exception.

  The Illinois Supreme Court has not addressed whether this exception applies to title insurers accused of negligent misrepresentation. Plaintiff and defendants rely on conflicting cases in the Illinois appellate courts to support their positions. First Magnus cites Notaro Homes, Inc. v. Chicago Title Insurance Co., 309 Ill.App.3d 246, 249, 722 N.E.2d 208, 211 (2d Dist. 2000), in which the plaintiff purchaser sued the defendant title insurer for negligent misrepresentation based on its failure to note in its title commitment that a recorded city ordinance prohibited the construction of a residential dwelling on the purchased property. The appellate court reversed the lower court's dismissal of the claim, stating that "the exception to Moorman does apply to cases where a prospective purchaser orders a commitment for title insurance and in reliance thereon enters into a business transaction." 309 Ill.App.3d at 257, 722 N.E.2d at 216. Defendants rely on the more recent ruling in First Midwest Bank, N.A. v. Stewart Title Guaranty Co., 291 Ill. Dec. 158, 823 N.E.2d 168 (1st Dist. 2005). In First Midwest Bank, the court acknowledged the holding in Notaro Homes, but then stated that it found other precedent, where courts did not apply ...

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